By TIOL News Service

MUMBAI, JULY 03, 2015: THE Appellant is a manufacturer of Motor Vehicle Aluminium parts. During the manufacturing process, some quantity of Aluminium dross, Aluminium Turning & Aluminium oily flash is generated which is given to one M/s. Shridhar Metal Works who converts these waste aluminium material into Aluminium Ingots.

Interestingly, M/s. Shridhar Metal Works was given a portion of the factory premises of the Appellant for carrying out such process. The said waste aluminium material is not sold to M/s. Shridhar Metal Works but given freely for carrying out job work. The resultant product of job work i.e. Aluminium Ingots is returned by M/s. Shridhar Metal Works within the same factory premises to the Appellant which the Appellant admittedly used in the manufacture of Motor Vehicle Parts which are undisputedly cleared on payment of excise duty.

The contention of the revenue is that there is removal of said waste aluminium material by the Appellant to a different entity i.e. M/s. Shridhar Metal Works ;that the waste material is Aluminium Waste and Scrap falling under Chapter Heading No. 76020010 of the CETA, 1985 which attracts excise duty.

The operative portion of the massive order passed by CCE, Aurangabad reads -

(i) I confirm demands of Rs.1,59,33,593/- and Rs.2,70,87,131/- against M/s. Aurangabad Electricals Ltd., M/s. Shridhar Metal Works respectively under proviso to Section 11A(1) [existing Section 11A(4)] of the Central Excise Act, 1944.

(ii) I confirm demands of Rs.56,64,235/- and Rs.83,05,124/- against M/s. Aurangabad Electricals Ltd. and M/s. Shridhar Metal Works respectively under Section 11A(1) of the Central Excise Act, 1944.

(iii) I order recovery of interest from both the notices under erstwhile Section 11AB & Section 11AA respectively and Existing Section 11AA of the Central Excise Act, 1944, on the amount as confirmed above.

iv) I impose penalty equal to the duty involved, for the period upto 7.4.2011 as per two SCNs, both dated 2.5.2013 on M/s. Aurangabad Electricals Ltd. and M/s. Shridhar Metal Works under Section 11AC of the Central Excise Act, 1944. However, such penalty shall be reduced to 25% in terms of Section 11AC(5) of Central Excise Act, 1944 provided the notices pay the amount of duty confirmed with interest and also 25% penalty within 30 days of the receipt of this order.

(v) I impose penalty of 50% of the duty involved for the period from 8.4.2011 onwards on M/s. Aurangabad Electricals Ltd. and M/s. Shridhar Metal Works under Section 11AC(1)(b) of the Central Excise Act, 1944.

(vi) I also impose penalty of Rs.6,00,000/- and Rs.8,00,000/- on M/s. Aurangabad Electricals Ltd. and M/s. Shridhar Metal Works respectively under Rule 25 of the Central Excise Rules, 2002.

The appellant is before the CESTAT.

After elaborating the facts, the appellant submitted -

++ The said aluminium ingots were used captively within the same factory of the appellant, therefore, since goods have not moved from the factory of the appellant and used captively for the manufacture of motor vehicle parts, no duty is liable on such remnant material.

++ Since remnant material were used within factory for captive use in the manufacture of other final product i.e. motor vehicle parts which are cleared on payment of duty, therefore, even if these remnant materials are considered as excisable goods the same remains exempted under Notification No. 67/95-CE dated 16/3/1995 hence demand of duty was wrongly confirmed.

++ Even if the removal of remnant material for job work is considered as removal outside the factory, the movement of this remnant material for job work is covered by Rule 4(5) of CCR, 2004. Reliance is inter alia placed on the decisions in Jain Metal Component Pvt Ltd. 2005-TIOL-369-CESTAT-DEL & Comet Brass Industries 2005-TIOL-536-CESTAT-MUM.

++ The Bombay High Court decision in Hindalco Industries Ltd. 2014-TIOL-2266-HC-MUM-CX is also relied upon to submit that the remnant material under question is not excisable goods and, therefore, not chargeable to excise duty.

The AR while reiterating the findings of the CCE, Aurangabad tried his best to justify the demand and the order passed.

The Bench after considering the submissions & taking note of various case laws, in a detailed order, inter alia observed thus -

+ As regards issue whether the remnant material cleared by the appellant to M/s. Shridhar Metal Works is clearance for the home consumption and leviable to excise duty or it is captive consumption and exempted under Notification No. 67/95-CE dated 16/3/1995, we observe that a part of the premises of the appellant was given on leave and licence agreement to different entity i.e. M/s. Shridhar Metal Works who is unrelated to the appellant, therefore, in our view the premises which is used by M/s. Shridhar Metal Works is outside premises of the appellant.

+ Secondly M/s. Shridhar Metal Works is an independent entity who carried out job work on the material supplied by the appellant in such situation M/s. Shridhar Metal Works as independent manufacturer of aluminium ingots, therefore, removal of remnant material to M/s. Shridhar Metal Works cannot be treated as captive consumption and, therefore, the same shall not be entitled for exemption under Notification No. 67/95.

+ In various judgments by various forum, view has been taken if any other person carries out the manufacture, even in the premises of another manufacturer for the purpose of job work basis it cannot be said that job worker is hired labourer, therefore, job worker shall be treated as independent manufacturer and not the premises owner.

+ In view of the above judgment of coordinate bench of this Tribunal it is settled that if job worker is doing job work within the factory premises of the principal with his own capital goods, it is job work and shall be treated as manufacture.

+ In the present case, job worker M/s. Shridhar Metal Works carried out manufacturing process of aluminium ingots in the premises, which was taken on leave and licence basis on consideration of rent, therefore M/s. Shridhar Metal Works is manufacturer on job work basis, therefore, removal of remnant material by the appellant to M/s. Shridhar Metal Works cannot be considered captive consumption.

+ As regard the issue that even if the removal of remnant material by the appellant to M/s. Shridhar Metal Works is not treated as captive consumption and it is home consumption, whether appellant is required to pay duty on such removal.

+ We are of the view that the removal of remnant material to M/s. Shridhar Metal Works is not sale/purchase transactions but it is on job work basis. This fact is not under dispute that ownership of remnant material remains with appellant and M/s. Shridhar Metal Works has carried out process of making aluminium ingots is on behalf of the appellant and M/s. Shridhar Metal Works paying only processing charges/labour charges, therefore, in this fact, transactions is of job work.

+ It is also fact that remnant material after conversion into aluminium ingots, the ingots is used in the manufacture of motor vehicle parts by the appellant which are admittedly cleared on payment of duty. Remnant is generated during the manufacture of motor vehicle part out of the cenvatable inputs, therefore, remnant which is squarely meant for use for further production of dutiable goods is in the nature input/partial processed inputs. Therefore removal of such remnant material can be statutorily made in terms of Rule 4(5)(a) of Cenvat Credit Rules, 2004.

+ We further note that similar provision is also made under Rule 16A of Central Excise Rules, 2002.

+ Even in the job work if the resultant product is returned and used in the manufacture of dutiable goods, the said job work is not liable for duty, in terms of notification 214/86-CE dated 25/3/1986. It is observed that in view of Rule 4(5)(a) and Rule 16A of Central Excise Rules, 2002 and Notification No. 214/86-CE it indicates that intention of the legislator is that if the input whether as such, or partially processed or after processing by the job worker finally used in the final product which is cleared on payment of duty, all these stages of the movement of goods from the raw material stage up to the final product no duty is leviable.

+ In the present case remnant are at intermediate stage that means initial input on which Cenvat credit is availed has undergone the process of manufacturing and during such process the remnant arose. The said remnant were sent for job work and it converted into aluminium ingots and said resulted ingots were used in the motor vehicle parts which are cleared on payment of duty. In this chain the remnant is an intermediate input, therefore, movement of such input undoubtedly is covered under Rule, 4(5)(a) of Cenvat Credit Rules, 2004 and Rule 16A of Cenvat Credit Rules, 2002.

+ Therefore, no duty can be demanded on the removal of such remnant material for job work and the adjudicating authority has wrongly confirmed the duty demand and imposed penalties.

+ Since, we have taken view that the removal of remnant is not dutiable, we are not going into aspect of excisability of said remnant material with reference to judgments in case of Indian Aluminium Co. Ltd and Hindalco Industries Limited (supra).

Holding that the demand of duty on clearance of remnant is not sustainable, the Appeals were allowed with consequential relief.

In passing - revenue neutrality : Such astronomical demands get confirmed at the drop of a hat only to be mauled at the appellate level. Thankfully, it seems the appeal came to be filed before the new s.35F provisions came into being!

(See 2015-TIOL-1316-CESTAT-MUM)